THE INTERVIEW: AIRLINE CEO GORDON BETHUNE (PART 2 OF 3)

A reason for smiles...
(this guy's a "Character"...to put it mildly!)

Manning: What is your view on reforming the Chapter 11 process for airlines?

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Bethune: Continental wouldn't be here today if it weren't for Chapter 11. Its a second chance. If done wisely you can come out and be at the top of the industry again, from the worst to the first. But you have to fix the company. The courts have an obligation to look at every one's rights, not just yours, because you're not paying bills. Who gets paid and how is contentious! It's like fighting over a carcass. I wish it were simple. The guys who run companies into bankruptcy wish everybody would go away and leave them alone. So, some body's put the thing in the tank and now every body's paying the price. My advice to others? 'Don't screw it up'.

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Manning: Frank Lorenzo was a tough guy to follow at Continental. (Editor's Note: Lorenzo was born in Queens, New York along side the runways of LaGuardia Airport. He is the son of a Spanish immigrant family who operated a beauty salon. He put himself through Columbia driving a Coca-Cola truck. Barbara Walters once called him "The most hated man in America". Pilots refused to take off if Lorenzo was on board a Continental flight. It became so bad, that he wouldn't drink from an open soft drink can if a flight attendant handed it to him.

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Bethune: (arches his eyebrow and leans into the boardroom table) Do you know that Frank Lorenzo and Texas Air (parent of Continental) had the cheapest fares---tore up all the labor contracts, tore up all the airplane contracts, had the lowest cost product in the industry---absolutely the lowest? What happened? They went bankrupt again in 1990. It ain't all about the low cost. Let's say that you would reduce the cost of pizza by doing something smart like taking the cheese off? How many pizzas are you going to sell? Can you make a pizza so cheap that nobody will eat it? Can you make an airline so cheap nobody will fly it? We did it. Still went bankrupt!

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Manning: Tough lesson, and almost a third time.

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Bethune: That's right! Came out in 1993 and almost went bankrupt again in 1995. Why is that? Lowest costs but still a shitty company, still a shitty product, crummy morale. That's not the kind of airline you want to fly. So we asked creditors, 'How can we help you place an airplane that we can't afford to pay for?' We put the Airbus A300 in places like India. We sent crews to train Indian pilots so that the lessors could have some cash instead of us just stiffing them. We worked with General Electric and Boeing on pushing orders back and getting some of our cash deposits back. We did a lot of things to facilitate our liquidity and to honor our obligations to the extent that we could. All of those companies still want to do business with Continental. We at the same time needed to be on-time because we needed a good product. And we needed to treat our people well. But the marketplace will decide what good is.

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Manning: I went back and looked at some film of your testimony in 2001 before a Senate subcommittee. And you said that you were opposed to the proposed mega-mergers such as American with TWA and United and US Airways. What are your views on airline consolidation today?

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Bethune: Look, that was pre-9/11. A United and US Airways merger clearly was not good for Continental. And my job was to represent Continentals employees and shareholders. Our intention, when we put a bid in for TWA and opposed the American deal, was not to allow a takeover without taking over TWA's pensions. They reluctantly agreed to accept the pension costs. We wanted to load up American with as much debt as we could because usually what's good for American is bad for Continental. A lot of our business is to stop your competitor from getting a good deal-to stop your competitor from getting too big or gaining an advantage. If he's buying something, make sure he pays too much. It's a tough business and if it's good for Continental, I'll be for it. If it's bad for Continental, I'll be against it.

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Manning: Are there any potential mergers you see that make good economic sense?

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Bethune: United and Continental makes a lot of sense! American-Northwest makes a lot of sense. I thought US Air and Delta might make some sense.

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Manning: You did? I can't believe that. I thought you were against it. It made sense?

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Bethune: Absolutely! I didn't say it didn't make sense. My job was to handicap the probability of success versus the handicap of Delta's stand-alone success and give advice. We don't need 15 to 20 air carriers. Do we always add airlines Michael, and never get rid of any? Do we not consolidate? Why wouldn't the big boys try and get some scales of economies to fight the ever-encroaching low-cost carriers? Five or eight years ago, low-cost carriers were 10% of the market. Now they're 35%. It's changed the competitive landscape.

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Manning: Alright, former US Airways Group CEO David Siegel says that he sees a shakeout where we'll end up with three "Legacy Carriers" and probably three low-cost, low-fare carriers.

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Bethune: Well, David's logical. But what's ever happened in our industry that's been logical in the last ten or fifteen years? What keeps it from happening? What's in it for an airline CEO to make an acquisition of another airline? He's not going to get a raise. He's going to get all this trouble, all this heartburn, all these integration problems. The guy who gets acquired---if he agrees to step aside---gets his severance, gets his options cashed out at the acquisition price, gets his shit load of money and goes home. The guy who's want to make the purchase would want to do it because it would be good for the company. But personally, he wouldn't want to do it, because he could be a failure. And why not play it safe and get a check and go give a speech in Hong Kong and ride in limos? There's only the fear of failure. Now if they're forced to do something---like the competitive landscape's changing and they're going to die---they will do the things they need to do because there's something in it for them. That's called security and tenure. They're not many guys that will do what's in the company's or the employee's best interest over their own.

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Manning: Okay, what is your view of a coherent aviation policy for the 21st Century?

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Bethune: I don't look to Congress to do anything but get re-elected, and whatever that takes they'll do that. We suffer in this country from a sense of entitlement, that we're still a regulated industry and you have the right to a night in the Four Seasons (luxury hotel) if we cancel you hundred-dollar ticket to someplace because of a rainstorm or something. Of course, somebody ought to do something if we're stuck on the runway and can't get off, or we may have some damages. Congress and others have a knee-jerk reaction to whatever it is--peanut free zones in the airplane, double the number of crews because you're over the 16 hours without any scientific basis for those kind of regulations. We're the most 'regulated-deregulated' industry that I've ever seen! We're run like a public utility. It's difficult to work in that environment. If Congress would take the word 'airline' out of their vocabulary, we would be better off. Congress is not here to help you, they're here to meddle and make life much more difficult for you---and they have! And they haven't helped the consumer. In pre-9/11, they talked about customer satisfaction and a customer bill of rights---most of those issues were because the Air Traffic Control system didn't work in this country with the volumes we had. When they said that there were too many flights scheduled into the New York area, the flights were full of people. How could there be too many flights if they were full? Who do we tell can't go to New York today? Who gets to decide? Airlines are in the business of taking people where they want to go. I think we need an ATC system that's user-based, fee-based, stand-alone outside of the budget process. Borrow money and make the investment they need to make in the technology to optimize the ATC system so that the people who want to go there can get there. They need to accommodate what the public wants, not decide you can't do it.

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We don't need a law that it's against the law to lose your bag! In other words if we lose a bag, it takes 25 to 50 bucks depending on where we have to deliver that bag to you the next day. We didn't make that much on the ticket. We're already motivated not to lose the bag! Making it against the law and fining someone to lose your bag is like whipping the horse when he's running flat-out! That's Congress's way of addressing the issue. They (the government) actually came to Bush (Intercontinental) Airport and counted the number of people in line and said we had too many people in line. And I asked, 'How long were the people in line?' He said, 'We didn't notice that'. There were a lot of people in line, but the lines moved very fast. I was only there for three minutes. So, what difference does it make how long the line is versus how long you had to stand in line? I said, 'Did you ever try to get a passport? How long is that line? Ever try to visit the Statue of Liberty? You're a line-measurer; we're in the customer satisfaction business. If you leave people in line, they just go someplace else! The government ought to stay out of it! They're the worst at customer satisfaction.

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TOMORROW: GORDON TAKES AIM AT THE AIRBUS A380

& WE LOOK AT HIS FUTURE TO CLOSE OUT OUR VISIT!